SEC Committee Says Accredited Investor Test Is Outdated, Backs Registered Funds for Retail Investors

An advisory committee to the U.S. Securities and Exchange Commission is urging a modernization of the outdated rules governing retail access to private markets. Meeting on Sept. 18, the SEC’s Investor Advisory Committee said the current framework — built around wealth-based accredited investor standards — no longer reflects the realities of today’s capital markets, where private funds now manage more than $28 trillion and private companies raised more than $600 billion in 2024.

The committee believes retail investors should have greater opportunities to participate in private markets, citing potential benefits such as increased diversification, capital formation, and wealth creation. However, it emphasized that such access must be structured with robust protections. The panel recommended that registered funds — including interval funds, tender offer funds, mutual funds, and exchange-traded funds — serve as the preferred path for retail participation. Registered vehicles, it noted, already provide safeguards like audited financials, diversification requirements, liquidity management, and SEC oversight.

To make registered funds more effective conduits, the committee urged the commission to:

• Update valuation standards to better address illiquid assets.
• Enhance and make liquidity disclosures more prominent for investors.
• Permit greater allocation to private assets within registered funds.
• Strengthen protections against conflicts of interest, sales practice abuses, and weak governance.

At the same time, the committee recognized ongoing political and legal momentum toward expanding direct retail access to private placements. Lawsuits have challenged the accredited investor rule as discriminatory, and several bills in Congress aim to democratize private market investing. If policymakers move forward in this direction, the committee recommended significant guardrails:

• Sophistication over wealth: Accredited investor eligibility should focus on credentials—such as CFA, CFP, CPA, or other recognized designations—or passage of a new SEC exam designed to test understanding of private market risks.
• Investment limits: Non-wealthy investors could face limits, such as 10 percent of income or net worth, to contain exposure.
• Enhanced disclosure and enforcement: More transparency on valuations and liquidity, combined with rigorous enforcement of compliance and sales practices.

Paul S. Atkins, chairman of the SEC since April 21, 2025, said the agency is focused on striking the right balance. “We want to promote individual investor participation in the private market while protecting these investors from misconduct and fraud,” Atkins said.

Commissioner Hester Peirce has gone further, stating her preference for full access for all investors, arguing that many are self-educated and resent private markets being reserved for the wealthy. In contrast, Duke law professor and committee member Gina-Gail Fletcher warned that retail investors could be harmed by opaque, illiquid, and complex offerings, and urged regulators to instead make private markets more like public ones.

Ultimately, the committee framed its recommendations as both an opportunity and a responsibility. Expanding retail access to private markets could deliver meaningful benefits, but the system must evolve beyond wealth tests toward a modernized framework that balances opportunity with protection. To move forward, the panel also called on the SEC to launch a request for comment to solicit views from market participants, policymakers, and the investing public.

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